The Securities and Exchange Commission (SEC) has released the draft memorandum circular that will implement the cap on interest rates and other fees imposed by lending and financing companies, and their online lending platforms (OLPs).
The proposed guidelines, released on January 27 for public comment, will operationalize Bangko Sentral ng Pilipinas (BSP) Circular No. 1133 Series of 2021, which prescribes the maximum interest rates and other fees charged by lending and financing companies, and their OLPs.
The BSP fixed the maximum nominal interest rate at 6 percent per month, or about 0.2 percent per day, and the effective interest rate (EIR) at 15 percent per month, or about 0.5 percent per day for covered loans which are unsecured, general-purpose loans that do not exceed the amount of P10,000 and with a loan tenor of up to four months.
Further, lending and financing companies may only charge up to 5 percent per month for late payment on outstanding scheduled amounts due. A total cost cap of 100 percent of the total amount borrowed, applying to all interest, other fees and charges, and penalties, regardless of time the loan has been outstanding, will likewise be imposed.
Under the draft SEC memorandum circular, the cap on interest rates and other fees will apply to covered loans which lending and financing companies will offer once the proposed rules take effect.
The SEC has 60 business days from January 3, 2022, when BSP Circular No. 1133, Series of 2021 took effect, to promulgate the rules and regulations implementing the capon interest rates and other charges imposed by lending and financing companies, and their OLPs.
Lending companies who fail to comply with the rate limits will be subject to penalties worth P25,000 and P50,000 for the first and second offense, respectively, while financing companies will be penalized for P50,000 for the first offense and P100,000 for the second offense.
The penalty for the third offense for both lending and financing companies will amount to twice the amount imposed for the second offense up to P1 million; the suspension of their financing and lending activities for 60 days; or the revocation of their Certificates of Authority to Operate as a Financing/Lending Company (CAs).
All lending and financing companies must submit an Impact Evaluation Report on or before January 15 of each year following the imposition of the rate caps. Noncompliance will entail a penalty of P10,000 plus P200 daily for financing companies and P10,000 plus P100 daily for lending companies. The second and third offense will lead to the suspension and revocation of their CAs, respectively.
The Impact Evaluation Report will form part of the reports that the SEC shall submit to the BSP within one year from the implementation of the cap on interest rates and other charges imposed by lending and financing companies.
The BSP, in turn, will take into account the SEC’s reports in reviewing the policy, which is intended as a time-bound relief measure for the unbanked and underserved segment of the population amid the pandemic.
The Monetary Board, which exercises the powers and functions of the BSP, imposed the maximum interest rate and charges on covered loans offered by lending and financing companies, and their OLPs, upon the initiative of the SEC.
In October 2019, the SEC formally requested the BSP to consider capping the interest rates and other fees that lending and financing companies may charge on consumer and payday loans, amid the proliferation of predatory and abusive lending practices.
Several lending and financing companies have imposed exorbitant interest rates, fees, and charges on their unsecured, short-term, small-value, and high-cost consumer credit, causing Filipinos to fall into debt traps.
Predatory lending has consequently propagated abusive, unethical and unfair means of collecting debts, as borrowers struggled to pay exorbitant charges on loans.
Current regulations allow lending and financing companies to freely agree with a borrower on the terms and conditions of their loan contract, including the imposable interest rate and other charges such as transaction fees and penalties for late payment.
As part of efforts to tackle predatory and abusive lending, the SEC invoked the provisions of Republic Act 8556, or the Financing Company Act of 1998, and Republic Act 9474, or the Lending Company Regulation Act of 2007, which empower the Monetary Board of the BSP to prescribe maximum interest rates that could be charged by financing and lending companies.
Earlier, the SEC issued Memorandum Circular No. 18, Series of 2019, setting forth the Prohibition of Unfair Debt Collection Practices of Financing Companies and Lending Companies.
The commission also issued Memorandum Circular No. 19, Series of 2019, providing for the Disclosure Requirements on Advertisements of Financing Companies and Lending Companies and Reporting of Online Lending Platforms.
The issuance of SEC Memorandum Circular No. 10, Series of 2021 on November 5, 2021 further imposed a moratorium on the recording of new OLPs, as the SEC prepared for the release of new rules that will govern the licensing and registration of such entities.